Demand for sand is about to blast higher

Analysts are predicting that as the oil and gas industry recovers, and drillers return to the shale formations in Texas and other states, the demand for sand is set to explode. Sand is a key component of hydraulic fracturing, used to keep fissures in shale rock open so oil and natural gas can escape.

In another sign that piles of sand may turn into piles of cash, a local company that produces sand for fracturing plans to launch an initial public offering. Smart Sand, based in The Woodlands, recently filed a registration statement with the Securities and Exchange Commission seeking to raise as much as $100 million by selling stock on public exchanges.

In the filing, Smart Sand said it could use some of the capital to expand its processing operations in Wisconsin to meet demand for fracturing sand that is projected to grow 23 percent a year through 2020.

The burgeoning market for sand is another sign that the oil and gas bust may have reached bottom, and a slow recovery is underway. Oil prices, hovering around $45 a barrel, are far above the $26 low reached in February. Rig counts are on the rise, up by more than 60 from their May low of 404, according to the Houston oil field services company Baker Hughes.

Analysts at the investment firm Tudor Pickering Holt & Co. say they are “increasingly convinced” that U.S. drillers will use more sand in the near future – a lot more. In hydraulic fracturing, drillers shoot millions of gallons of water into horizontal wells to fracture the rock and free oil and gas.

To keep those fractures open, they add “proppant” – a.k.a sand.

Sand use has already exploded, rising from 3 million pounds per well in 2013 to 5 million in 2014 to 8 million pounds per well now, according to Tudor Pickering. Analysts there say they expect annual sand use in horizontal wells to climb to more than 11 million pounds per well as prices and production recover, based on the analysis of second-quarter earnings transcripts and visits to exploration and production companies.

The analysts cited the practices of top energy companies in the Permian Basin’s Delaware and Midland areas in West Texas. “Average” drillers packed wells with 7 million to 8 million pounds of sand, while “leading edge” work aimed to use 15 million to 20 million pounds. Meanwhile, in Haynesville, drillers were using 30 million to 50 million pounds per well, Tudor Pickering said.

That means companies are going to have an increasingly hard time finding cheap sand and getting it delivered to their wells in hundreds of trucks and train cars. The ensuing chaos, they said, will be a “logistical nightmare.”

Smart Sand, The Woodlands company, said in its SEC filing that the two white sand processing sites in Wisconsin have good access to railroads. The sites have a combined 344 million tons of “proven recoverable” sand reserves, according to its SEC filing.